Impact assessment of blockchain-enabled smart contracts on the visibility of construction payments

Cash flow is crucial to the financial wellbeing of construction and engineering firms. Construction progress payments, constituting a big portion of cash flow on projects, are currently processed using monthly payment applications. These applications provide only an aggregate view of payments and cannot support the wide range of information needs faced by different stakeholders. As a result, firms often have partial visibility into the flow of cash and its interconnection with construction progress. Achieving visibility is particularly challenging when stakeholders need to employ a more granular look into their financial data. Blockchain-enabled smart contracts have a potential to address these limitations due to their innovative approach toward decentralized consensus in peer-to-peer networks. The technology may provide a means of directly conditioning payments on product flow, not only increasing the integration of the two flows but also enhancing visibility. The literature has mostly remained theoretical; the engineering and construction industry lacks an understanding of whether this technology has a clear role to play, how it can be used, and what its impact will be. To address this gap, this thesis reports on a study of the impact of blockchain-enabled smart contracts on the visibility of construction progress payments. The research objectives were twofold: 1) assessing the information visibility in today's digital payment solutions and those relying on blockchain-enabled smart contracts; this comparison is drawn at various levels of trade, product, and temporal granularity; and 2) assessing the resilience of conventional and smart contract-enabled payment solutions in the face of increased granularity. The Charrette Test Method was employed to compare the visibility in the two payment solutions, one based on a leading commercial software used in the industry and one based on smart contracts. Both payment solutions were used to visualize three months of payments for indoor finishing work at a commercial construction project. Charrette test participants were assigned to either solution and asked to identify the total amount of payments under 12 different scenarios. Their performances were assessed using the three metrics of information completeness, information accuracy, and information latency. The primary findings are threefold: 1) blockchain-enabled smart contracts can enhance visibility in terms of information accuracy and completeness; the improvements in information latency, however, were not statistically significant; 2) visibility benefits of smart contracts are achieved only when firms need a more granular look into their payment data (the flows of cash and product). For inquiries with the lowest granularity (total amount of payments to a general contractor in a month), smart contracts provided no benefit over state-of-the-art payment solutions used in the industry; and 3) in contrast to conventional payment systems, blockchain-enabled smart contracts were observed to be resilient in the face of increased granularity, never suffering declines in visibility. The theoretical contributions of this work include 1) impact assessment of blockchain-enabled smart contracts on the visibility of payments and at different levels of information granularity; 2) assessing the robustness of conventional payment systems and those based on blockchain-enabled smart contracts in the face of increased granularity; 3) identifying aspects of visibility that are improved using blockchain-enabled smart contracts.